Student loan debt: Student Bill of Rights in California would help ensure higher education is a path out of poverty, not into it

By Bob Wieckowski

Special to the Mercury News

Posted:
05/17/2013 12:01:00 PM PDT

Updated:
05/18/2013 04:49:38 PM PDT

Click photo to enlarge

From left, San Jose State University students Benjamin Lee, Brian Ha and Evan Kashi work on their class homework in the EE98 Introduction to Circuits class taught by Professor Khosrow Ghadiri, at San Jose State University in San Jose, Calif. on Wednesday, April 10, 2013. (LiPo Ching/Staff)

A college degree is still the best road to financial security, helping to improve quality of life for millions of American families. But with the soaring cost of higher education, the route is paved with too many potholes. A few wrong turns and poor choices can lead students straight off the road of financial prosperity, into a ditch filled with crippling debt.

In fact, with student loan debt now hovering above $1 trillion nationally, many financial experts predict this mass of red ink could swamp our economy. But with some key reforms we can make sure education remains a pathway out of poverty, not into it.

That's why I am proposing a Student Bill of Rights, a four-bill package that focuses on debt prevention through education and easing the burden on student borrowers.

The Assembly passed my bill, AB 233, to allow a student debtor to claim an exemption from a wage garnishment on private student loans. It now awaits action in the Senate.

In the past decade, starting salaries for college graduates have fallen 15 percent, while education debt has soared 500 percent. Unlike federal student loans, which have multiple options for of deferment and forbearance, private student loans lack many of these crucial safeguards. With private student loans, a creditor can garnish 25 percent of a debtor's disposable income. Preventing wage garnishment will make the lenders more inclined to work with students on manageable repayment plans and give graduates a chance to stabilize their finances.

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Students should know before they owe. They should receive counseling on private loans, just as they do on federal student loans. Private loans, which are becoming more of a necessity for students seeking degrees, charge higher interest rates, lack several protections and are generally a riskier transaction. By requiring parity with the counseling students receive on federal loans, AB 534 ensures students will be able to make more informed decisions.

As a bankruptcy attorney, I am constantly meeting clients -- adult clients -- who have a very poor understanding of their personal finances. This is not uncommon. It is one reason Congress designated April as Financial Literacy Month. But California is one of only four states that do not include personal financial literacy in their economic education standards. My Student Bill of Rights would create a Common Cents curriculum (AB 391) that includes coursework on savings, checking accounts, credit cards and ways to pay for college.

Last year college students took out more than $100 billion in loans. They are taking on more and more debt at an alarming level. Yet Congress in 2005 prohibited student debt from being discharged through bankruptcy. Virtually every kind of debt -- even gambling debt -- can be discharged through bankruptcy.

Since that time, the average student loan debt has increased 58 percent to more than $27,000. This needs to end. I am pushing Assembly Joint Resolution 11 to urge Congress to allow private student loan debt to be discharged via bankruptcy.

In his State of the Union address this year, President Barack Obama asked us to better equip our students for jobs in a high-tech economy. The Public Policy Institute of California says the state needs to dramatically increase its number of college graduates to meet the demands of its workforce in 2025.

The road to a strong and vibrant economic future for California will be much smoother if we act now to reduce rapidly growing student debt. Providing an affordable avenue to higher education has made California the ninth largest economy in the world. Burying students with thousands of dollars of debt will limit opportunity and financial security.

California can do better.

Bob Wieckowski (D-Fremont) represents the 25th district in the California Assembly and serves as chairman of the Assembly Judiciary Committee. He wrote this for this newspaper.